LZ Q1 Earnings Call: Subscription Expansion and Brand Integration Underpin 2025 Strategy

Online legal service provider LegalZoom (NASDAQ:LZ) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 5.1% year on year to $183.1 million. The company expects next quarter’s revenue to be around $183 million, close to analysts’ estimates. Its non-GAAP profit of $0.13 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

LegalZoom’s first quarter performance was shaped by subscription growth, product bundling, and the impact of the Formation Nation acquisition. CEO Jeffrey Stibel noted that subscription revenue growth accelerated sequentially, highlighting success in repositioning the business toward higher-value, recurring offerings. Stibel emphasized, “We drove strong results despite a weaker-than-expected macroeconomic environment,” attributing the shift to a focus on compliance-related and virtual mail subscriptions. The company also reported progress in integrating Formation Nation, with a notable increase in subscription units and a reduction in reliance on free formation products. Management pointed to effective pricing adjustments and bundling entry-level services—such as bookkeeping and e-signatures—to drive engagement and enable future cross-sell opportunities.

Looking ahead, LegalZoom’s guidance is anchored in a strategy to further decouple from business formation volatility and drive double-digit subscription revenue growth by year-end. Management expects ongoing pricing initiatives, expanded product features, and increased cross-sell efforts to sustain momentum, despite anticipating a mid- to high single-digit decline in the overall business formations market. Stibel explained, “We have a resilient, dynamic business that gives us flexibility to execute, manage to the bottom line and drive cash flow generation.” The company’s approach includes leveraging artificial intelligence (AI) to enhance both customer acquisition and operational efficiency, as well as exploring new partnerships to diversify lead sources and reduce dependence on paid marketing. LegalZoom’s cost structure flexibility and growing subscription base are expected to support EBITDA margin targets even in a shifting macroeconomic climate.

Key Insights from Management’s Remarks

Management attributed quarterly results to subscription adoption, product bundling, and integrating Formation Nation, while highlighting cost discipline and evolving marketing strategies.

• Subscription model shift: LegalZoom’s move toward higher-value, recurring revenue streams continued, with over 60% of revenue now from subscriptions. Management highlighted the success of compliance and virtual mail subscriptions, alongside stable adoption rates for higher-priced registered agent services.
• Product bundling strategy: The company bundled entry-level products such as bookkeeping, forms, and e-signatures into premium formation packages, driving a 20% increase in subscription units. While this boosted subscriber counts, management acknowledged lower average revenue per user (ARPU) and renewal rates for these entry-level bundles, viewing them as a funnel for future upsell.
• Formation Nation integration: Early integration efforts contributed to revenue and informed LegalZoom’s broader shift away from free formations. The acquisition allowed the company to redirect lower-margin, value-seeking customers to Formation Nation, while LegalZoom focused on higher-value segments. Management expects this approach to drive overall margin improvement.
• Pricing discipline and elasticity: LegalZoom reverted registered agent pricing to historical levels and began testing further price increases for existing customers, citing inelastic demand and positive retention. Management is cautious about raising prices without adding value, but sees this as a sustainable lever for margin expansion.
• Marketing and brand evolution: A new brand campaign emphasizes LegalZoom as a trusted provider, combining technology access with human support. The company is reallocating marketing spend rather than increasing it, aiming for greater efficiency and a stronger brand presence amid macroeconomic uncertainty.

Drivers of Future Performance

LegalZoom’s outlook focuses on expanding subscription revenue, optimizing product mix, and maintaining flexible spending amid a weaker business formations environment.

• Subscription-led growth: Management expects double-digit subscription revenue growth by the end of the year, driven by ongoing product bundling, expanded compliance features, and targeted pricing initiatives. Upselling and cross-selling within the existing customer base are central to this strategy, as is migrating entry-level subscribers to higher-value plans over time.
• Integration and operational efficiencies: The continued integration of Formation Nation is expected to allow LegalZoom to segment customer acquisition and optimize for both value and margin. The company will apply learnings from Formation Nation’s "do-it-for-me" model and customer onboarding to drive higher engagement and unlock new revenue streams, while leveraging AI and automation to improve efficiency and scalability.
• Macro and regulatory headwinds: Management is modeling for a mid- to high single-digit decline in business formations and no further revenue from Beneficial Ownership Information Report (BOIR) filings due to a regulatory change. Flexible marketing and cost structures are expected to help LegalZoom manage profitability despite these external pressures.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) LegalZoom’s ability to sustain double-digit subscription revenue growth as product bundles mature, (2) progress in integrating Formation Nation and shifting customer mix toward higher-value segments, and (3) the effectiveness of new marketing strategies and partnerships in diversifying lead generation. Developments in AI-driven automation and evolving regulatory requirements will also be important markers of long-term execution.

LegalZoom currently trades at a forward EV/EBITDA ratio of 9.8×. At this valuation, is it a buy or sell post earnings? The answer lies in our full research report (it’s free).

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